Ethical Procurement

Ethics dictates that business be conducted with integrity, fairness, and
openness, which require open communication within and among both buying and
supplying organizations, ensuring a competitive procurement, and thereby give
any organization a chance to compete for contracts and win. It seems like a week
does not go by without one hearing a story demonstrating lapses in business
ethics stories, where lucky contract winners share close friends in strategic
places, as was the case of Halliburton, which was awarded billions in
federal no-bid contracts during the years when Dick Cheney was its chief
executive officer (CEO).

Recognizing this longstanding problem of competitive procurement becoming the
exception, the US government launched the Federal Acquisition Regulation
(FAR) more than twenty years ago, to help federal agencies manage procurement
more efficiently. FAR is an official document setting forth procurement policies
and procedures that US Federal agencies should follow when soliciting offers
(bids or proposals) for goods,
products, services, or construction from qualified suppliers. Rules are delineated into eight chapters:

In response to competition becoming the exception rather than the rule in
procurement, Part 6 of the FAR, Competitive Requirements, incorporated
the Competition In Contracting Act (CICA). It seeks to establish full
and open competition (FOC) as the standard, in order to eradicate
partiality, favoritism, political lobbying, and bribery.

In light of these corporate scandals and the heightened scrutiny over
corporate practices, FAR will have a greater impact on business. It contains key
elements that all organizations should be aware of, whether they are conducting
business with a government agency, or with private entities. Using the policies
and procedures outlined by FAR, we will

define what exactly is a competitive procurement, its purpose and
benefits;

present the different competitive and non-competitive
procurement methods and their supporting processes; and

detail the two key procurement methods:

Invitation for bids (IFB), and

Request for proposals (RFP).

Competitive Procurement

Benefits of Competitive Procurement

The purpose of competition is to benefit your enterprise, and competition
should not be promoted for the sake of competition. Indeed, in some cases, it
may cost more to enter into a competitive procurement to do business directly
with a supplier because of the unicity of the requested products, the
inadequacy of other sources, the immediacy of your needs, or the
emergency or legitimacy of circumstances. In other words, competitive
procurement should be promoted pragmatism, with other methods thus becoming
exceptions.

Competitive procurement is the contractual acquisition (purchase or
lease) by an organization of any kind of asset, whether material (goods,
products, or construction) or immaterial (services) with appropriated funds,
enabling all deemed responsible sources to compete in a fair and open
environment. Competitive procurement is also known as full and open
competition (FOC), or competitive solicitation.

While procurement is supposed to bring fairness, impartiality, transparency,
and suitability to corporate practices, a competitive procurement process will
ensure the highest level of openness, thus maximizing the suitability of the
requested assets or services, and the best return on investment (ROI).

Different Procurement Methods

There are several procurement methods that can be used to complete an
acquisition. Let us define the difference between procurement methods and their
supporting processes. A procurement method is the manner chosen to perform a
contractual acquisition. Procurement methods could be any of the three
following:

Simplified acquisitions, like micro-purchases, small
purchases;

Full and open competition (FOC), like bids, proposals;
or

Other than full and open competition (OFOC), like sole source.

Simplified acquisitions procedures are the procurement methods used
for acquisitions for which the amount does not exceed $2,500 for the
micro-purchase threshold, and $100,000 for the small purchase threshold (FAR
2.101). Simplified acquisitions are equitably distributed among qualified
suppliers in the local area, and purchases should not be split to avoid the
requirements for competition above their respective thresholds. Minimal
documentation is usually required, including a determination that the price is
fair and reasonable; and material on how this determination was derived.

Full and Open Competition (FOC)

When do you have to put a formal solicitation process based on competition in
place? You may be required, depending on your organization's purchasing policy,
to use a formal solicitation and selection, i.e. competitive procurement,
process for acquisitions for which the amount exceeds a certain threshold�in our
case, the simplified acquisition threshold.

The competitive procurement methods available for use in fulfilling the
requirement for full and open competition in the acquisition process are

Sealed bidding is a competitive procurement method used when the best
value is expected to result from a selection of the lowest evaluated priced
offer. It relies on a solicitation document called invitation for bids
(IFB) (also known as invitation to bid [ITB], or invitation to tender
[ITT]) and involves the following steps:

Preparation of invitation for bids

Publicizing of invitation for bids

Receipt of bids

Public opening of bids

Evaluation, and comparison of bids

Selection of the lowest-priced technically acceptable solution

Award of contract

Sealed bids are normally solicited if

Time permits the solicitation, submission,
and evaluation of sealed
bids;

The award will be made on the basis of price
and other price-related
factors;

It is not necessary to conduct discussions
with the responding providers
about their bids; and

There is a reasonable expectation of receiving
more than one sealed bid.

Negotiated Procurement (Competitive Proposals)

Negotiated procurement is a competitive procurement method used when
the best value is expected to result from selection of technically acceptable
proposals, with the lowest evaluated price, in other words, when cost is not the
most important factor of evaluation.

The negotiated procurement method relies on a solicitation document called
request for proposals (RFP).

it is necessary to conduct discussions with providers, because of
differences in areas such as law, regulations, and business practices,
especially for contracts to be made abroad.

Two-step Sealed Bidding

Two-step sealed bidding is competitive procurement method that is a
combination of the two aforementioned competitive procurement procedures, and is
designed to obtain:

the benefits of negotiation for helping the requesting organization
complete or define specifications without any pricing consideration; and

the benefits of sealed bidding for getting the best price for the
technically acceptable solution agreed-upon.

Two-step sealed bids can be used in preference to negotiated procurement when
all of the following conditions are present:

Specifications are not definite or complete or may be, without further
technical evaluation or discussion, too restrictive to ensure mutual
understanding between each source and the requesting organization;

Definite criteria exist for evaluating technical proposals;

More than one technically qualified source is expected to be available;

Sufficient time will be available for use of the two-step sealed-bidding
method; and

A firm-fixed-price contract or a fixed-price contract with economic
price adjustment will be used.

Other than Full and Open Competition (OFOC)

Because Part 6 of the FAR, formerly the Competition In Contracting Act
(CICA), defines competition as the standard for procurement, other
non-competitive procurement methods are considered to be exceptions, and thus
should be used only under certain, well-defined conditions, and they should be
carefully and thoroughly justified and documented. Contracting without providing
for full and open competition is called other than full and open
competition (OFOC). OFOC cannot be justified because of a failure to plan in
advance, or concerns about the availability of related funds or budget.

Sole source is an example of non-competitive procurement or purchase process
accomplished after soliciting and negotiating with only one source, so-called
sole source, thus limiting full and open competition. Sole source solicitation
constitutes a violation of the CICA unless it is justified under one of seven
specific circumstances. Read further information about how to protest
against sole source solicitation.

These circumstances, which can be invoked as sole source justification, are
described in FAR 6.302 as follows:

Only one responsible source and no other supplies or services will
satisfy requirements

Unusual and compelling urgency

Industrial mobilization; engineering, developmental, or research
capability; or expert services

International agreement

Authorized or required by statute

National security

Public interest

Although only one of these conditions may justify setting competition aside,
each and any of them present limitations that are supposed to hamper, or limit,
their abuse.

If a sole source acquisition is ethical, it can shorten the acquisition
process, and lead to several benefits:

a reduced decision cycle (in other words, less time is required to award
contracts);

lowered administrative costs (the procurement process is reduced to a
minimum);

prices reflecting the best value;

better promoted small business participation; and

improved delivery of products and services.

Conclusion

As Terence said in his play, homo sum, humani a mi nihil alienum
puto (I am a human being, so nothing human is strange to me). Humanity is,
above all, our nature, and commerce and trade have always been accompanied by
some degree of faulty business ethics. Yet, FAR has been successful, and is
inspiring more and more private enterprises to exercise due diligence in their
procurement practices. By maintaining a healthy level of competition, both the
buying and supplying organizations will benefit.

Web Resources on Competitive Procurement

The Project on Government Oversight
(POGO) is an independent nonprofit that investigates and exposes corruption,
fraud, abuse, waste, and other misconduct in order to achieve a more accountable
federal government. POGO provides an archive of investigations in many areas, a
blog, and a federal contractor misconduct database. Reported facts, such as the $7,600 coffee maker and the $436 hammer,
will dismay you.

"The Project On Government Oversight follows a rich tradition of assuring that the government continues to work for the people it represents. Our nation was founded on the very principle that representation and accountability are fundamental to maintaining a strong and functioning democracy. Today, these principles espoused by our founding fathers are under attack as our federal government is more vulnerable than ever to the influence of money in politics and powerful special interests."
-- www.pogo.org

Praise for Dina Rasor, founder and board member of POGO.

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